#11168 - International Commercial Arbitration - International Law II

International Commercial Arbitration

1. Overview of the Issues

   1. Where to arbitrate?

      1. Institutional arbitration versus ad hoc arbitration

      2. ICC, AAA, LCIA, ICSID

   2. What arbitration procedures?

   3. How to recognize international arbitration awards in domestic courts?

2. Institutional versus Ad Hoc Arbitration

   1. Institutional arbitration

      1. Umbrella institution offers some administrative support, rules of procedure and processes to overcome deadlocks

         1. Eg ICC Rules of Arbitration

      2. Reputation of the institution may help at the recognition phase

      3. Earlier awards may have interpreted or clarified the rules of procedure

   2. Ad hoc arbitration

      1. Parties must specify and agree to all practical and procedural aspects of the arbitration

3. Domestic Arbitration

   1. Federal Arbitration Act (FAA)

      1. Chapter 1 – General Provisions

         1. Sec. 1. "Maritime transactions" and "commerce" defined; exceptions to operation of title.

         2. Sec. 2. Validity, irrevocability, and enforcement of agreements to arbitrate.

            1. A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

         3. Sec. 3. Stay of proceedings where issue therein referable to arbitration.

            1. upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.

4. Legal Framework for International Commercial Arbitration

   1. 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitration Awards (“1958 New York Convention”)

      1. 146 state parties

   2. Other multilateral treaties:

      1. Inter-American Convention on International Commercial Arbitration (“Panama Convention”, 1975)

      2. European Convention on International Commercial Arbitration of 1961

   3. Domestic law in the country of the seat of arbitration

      1. US: Federal Arbitration Act Chapter 1

5. New York Convention

   1. Presumptive validity of international arbitration agreements (Art. II.1)

      1. Clause in a commercial contract

      2. Submission agreement providing for the arbitration of an existing dispute

      3. “[S]o long as the prospective litigant effectively may vindicate his statutory causes of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent functions.” Mitsubishi Motors (CB 1291).

         1. “Where the parties have agreed that the arbitral body is to decide a defined set of claims . . . , the tribunal therefore should be bound to decide that dispute in accord with the national law giving rise to the claim.” Mitsubishi Motors (CB 1291).

         2. In Mitsubishi Motors, the Court held that the arbitration agreement should be enforced because of (1) concerns for international comity, (2) respect for the capacities of foreign and transnational tribunals, and (3) sensitivity to the need of the international commercial system for predictability in the resolution of disputes. Mitsubishi Motors (CB 1289).

            1. The Court determined that this was the proper result “even assuming that a contrary result would be forthcoming in a domestic context.” Mitsubishi Motors (CB 1289).

   2. Domestic courts must refer the parties to arbitration if there is a valid clause (Art. II.3)

   3. If a domestic court is reviewing an arbitral award rendered in that country or under the laws of that country, it is domestic law that governs whether the award can be vacated.

      1. In the U.S., this would be the FAA.

   4. If a domestic court is reviewing an arbitral award that was rendered by another signatory nation, or under the law of another signatory nation, then the New York Convention’s Article V governs the issue of vacating the foreign arbitral award.

   5. Presumptive finality of foreign arbitration awards (Art. III)

      1. Limited and exclusive set of exceptions (art. V)

      2. BUT: No limits on annulment of awards in the state of arbitral seat!

   6. Article V exceptions to recognition and enforcement of arbitral awards:

      1. In General

         1. The New York Convention shifts the burden of proof to the party defending against enforcement and limited his defenses to those set out in Article V.

      2. Article V Exceptions:

         1. Article V(2)(b): Public Policy

            1. The public policy exception allows the court in which enforcement of a foreign arbitral award is sought to refuse enforcement, on the defendant’s motion or sua sponte, if “enforcement of the award would be contrary to the public policy” of the forum country. Parsons and Whittemore (CB 1284).

               1. This exception is construed narrowly. Parsons and Whittemore (CB 1284).

               2. Enforcement of foreign arbitral awards may be denied under this exception only where enforcement would violate the forum state’s most basic notions of morality and justice. Parsons and Whittemore (CB 1284).

                  1. It is inappropriate to equate “national policy” with “public policy.” Parsons and Whittemore (CB 1284).

                  2. “Public policy” and “foreign policy” are not synonymous. Nat’l Oil Corp. (CB 1297).

                     1. To read the public policy defense as a parochial device protective of national political interests would seriously undermine the Convention’s utility. Nat’l Oil Corp. (CB 1297).

                     2. This provision was not meant to enshrine the vagaries of international politics under the rubric of “public policy.” Nat’l Oil Corp. (CB 1297).

         2. Article V(2)(a): Non-Arbitrability

            1. This non-arbitrability exception authorizes a court to deny enforcement of a foreign arbitral award when “the subject matter of the difference is not capable of settlement by arbitration under the law” of the forum country. Parsons and Whittemore (CB 1285).

               1. For this exception to apply, there must be some special national interest in judicial, rather than arbitral, resolution of the claims underlying the foreign arbitral award. See Parsons and Whittemore (CB 1285).

                  1. Certain categories of claims may be non-arbitrable because of the special national interest vested in their resolution. Parsons and Whittemore (CB 1285).

                  2. BUT the mere fact that an issue of national interest may incidentally figure into the resolution of a claim does not make the dispute not arbitrable. Parsons and Whittemore (CB 1285).

                  3. BUT simply because acts of the United States are somehow implicated in a case, does not mean that the United States is vitally interested in its outcome. Parsons and Whittemore (CB 1285).

         3. Article V(1)(b): Inadequate Opportunity to Present Defense

            1. Under this exception, enforcement of a foreign arbitral award may be denied if the defendant can prove that he was “not given proper notice . . . or was otherwise unable to present his case.” Parsons and Whittemore (CB 1285).

               1. This provision essentially sanctions the application of the forum state’s standards of due process. Parsons and Whittemore (CB 1285).

                  1. An inability to present one’s witnesses and logistical issue with scheduling are not enough to deny recognition and enforcement of a foreign arbitral award. See Parsons and Whittemore (CB 1286).

         4. Article V(1)(c): Arbitration in Excess of Jurisdiction

            1. Under Article V(1)(c), a defendant against enforcement of a foreign arbitral award by proving that:

               1. “The award deals with a difference not contemplated by or falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration . . . .” Parsons and Whittemore (CB 1286).

                  1. This provision tracks in more detailed form § 10(d) of the FAA, which authorizes vacating an award “where the arbitrators exceeded their powers.” Parsons and Whittemore (CB 1286).

                  2. Both provisions basically allow a party to attack an award predicated upon arbitration of a subject matter not within the agreement to submit to arbitration. Parsons and Whittemore (CB 1286).

                  3. This provision is construed narrowly. Parsons and Whittemore (CB 1286).

                  4. There is a strong presumption that the arbitral body acted within its powers. Parsons and Whittemore (CB 1286).

                  5. Although the Convention recognizes that an award may not be enforced where predicated on a subject matter outside of the arbitrator’s jurisdiction, it does not sanction second-guessing the arbitrator’s construction of the parties’ agreement. Parsons and Whittemore (CB 1287).

         5. Article V(1)(e): The Award Has been Set Aside:

            1. An foreign arbitral award may be vacated where “[t[he award has not yet become binding, on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.”

         6. (NOT in Article V): Award in “Manifest Disregard” of Law

            1. Both the legislative history of Article V and the statute enacted to implement the United States’ accession to the Convention are strong authority for not reading into the Convention an implied exception allowing the court to deny recognition and enforcement of a foreign arbitral award where the award is in “manifest disregard” of the law.

               1. BUT the FAA, specifically 9 U.S.C. § 10, has been read to...